Derivatives scandal: "The executive squirts and the legislator have been duped"



was could have been financed with all the money: kindergartens, theater, integration courses. Instead, the Hessian Ministry of Finance has put hundreds of millions of euros in the sand with risky interest-rate bets. In the long term, even billions of additional expenses are threatening. And Hesse is not the only one. Other states have tried their luck with so-called derivatives transactions – and apparently they bet exactly like Hesse.

The federal and state governments are legally allowed to purchase derivatives for debt management. These are futures contracts in which two parties agree on certain payments in the future. As a result, fixed interest rates for loans can be agreed today and will only start in a few years' time. Exactly such interest-rate contracts concluded Hessen 2011 in great style with individual banks. For about a fifth of the country's debts, interest rates were struck with a single blow for 40 years. A company that went wrong because interest rates have continued to fall sharply since then.

While the Hessian Finance Minister Thomas Schäfer (CDU) defended the country's derivatives practice, Hess's opposition asked for clarification. Thorsten Schäfer-Gümbel (SPD) wrote on Twitter, both the Court of Auditors and the state government should establish full transparency in the budget committee on the calculations and scenarios before the national elections.

Jan Schalauske, spokesman for the left parliamentary group in the Hessian state parliament, said: "We demand that the country cease speculating tax money on the financial markets." It must be investigated whether and how the Land of Hesse could step out of the already existing activities.

In other states, too, politicians were concerned about the large Hessian gambling that the WELT AM SONNTAG investigation had uncovered. A survey in the provinces showed that all countries except Bayern, Mecklenburg-Vorpommern, Saxony and Thuringia use derivatives in all other countries – a total of twelve. Most of them have at least accumulated book losses.

The biggest loser of derivatives is Baden-Württemberg. Here, the current minus interest-bearing security amounts to € 4.1 billion. Hesse and Bremen followed with a negative market value of 3.2 billion euros. If the derivatives expire within a few years, this can cost billions. Money that is lacking one day when it comes to financing social projects such as civic integration courses.

Gerhard Schick, member of the Bundestag of the Greens of Baden-Württemberg and until last year's spokesman for the budget, said WELT: "I think the approach of the Hessian Minister of Finance for debt management is wrong, even if it is not as bad as the municipal interest rate swaps Certain things should not be done with tax money. "At the same time, he called for" better cooperation between the federal and state governments, so that countries can benefit from lower interest rates, even without financial acrobatics ".

"Derivatives are unknown at the state's parliament"

Criticism also came from the FDP in Baden-Württemberg. "Now it appears that not only the municipalities have gambled, but also the federated states," said the FDP group leader of Baden-Württemberg, Hans-Ulrich Rülke WORLD. "If Baden-Württemberg really has four billion euros on the fire, it must be speculative transactions, and it is high time to get out."

It causes dissatisfaction that most Land Parliaments know nothing about the speculative transactions. "The executive squirts and the legislator have been duped.The state parliament in Baden-Wuerttemberg is not aware of the derivatives trade," said FDP man Ruelke. He has made a parliamentary request to bring light into the darkness.

His group had submitted a bill that banned interest rate investments during the previous parliamentary term. Now he wants to know if the Ministry of Finance has deliberately rejected the bill in order not to have to discover his own interest rate bets.

In fact, the willingness of many countries was limited. The survey found two countries that refused to disclose the current cash value of their derivative transactions. One of them was the Saarland. The Saarland Ministry of Finance denied the information on the grounds that it did not want to sell the derivatives too early. Therefore the "cash value of derivatives is not relevant and for the most part unknown". A worrying explanation that the country does not even know how much its derivatives are worth.

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Minister of Finance Thomas Schäfer defends the company:

The faction of the left in the federal state parliament of the Saarland asks for clarification: "It is incomprehensible why the state government of Saarland does not want to reveal the true value of the derivatives," said Jochen Flackus, fiscal spokesman for the left parliamentary group in Saarland and Chairman of the Finance and Budget Committee.

The Saarlanders would have the right to know what happens to their taxpayers' money and how investments develop from these public funds. That is why the left-wing group in the Finance and Budget Issues Committee has put a corresponding report from the state government on the agenda, Flackus reported.

Even in the Berlin opposition, it was not a good thing that the Berlin Senate Department for Finance had refused the information on the current value. At the first request of WELT AM SONNTAG, the Senate department did not even refuse any information about the derivatives portfolio of the Land of Berlin.

The newspaper had to first refer to the Berlin press deed, so that the ministry at least revealed that Berlin had a total of 137 derivatives with a nominal volume of 7.8 billion euros. However, the question of the present cash value did not want to be answered by the Senate administration to several questions. Reason: "From the point of view of the state of Berlin, the cash value has no meaning and is not suitable as a benchmark."

Source: Infographic WORLD

FDP's economic policy spokesman in the Berlin House of Representatives, Florian Swyter, criticized the Senate's behavior: "In principle, I have nothing against derivatives, but we need maximum transparency, otherwise the public and the House of Representatives have no possibility at all. to control the company. " Swyter announced the "thing to get to the limit". Ultimately, the FDP group would ask a parliamentary question on the subject.

The federal and state governments are legally allowed to buy derivatives for the management of their debts. However, experts question whether such complex products should be used in public administration. A long-term commitment is also extremely sensitive and unpredictable. The audit rooms warn again and again.

In 2015, the audit offices of the German federal and state governments reached agreement on recommendations for the use of derivatives by Länder and local authorities. This states, among other things: "These financial instruments entail considerable risks." Anyone who wants to act as a country or municipality with derivatives, for which a "financial management system is indispensable, so that the monitoring of risk positions can take place independently of banks at any time".

In the first place, derivatives should only be used to "reduce risk and reduce the burden on the public sector". Important is an independent check. Prior to each transaction, "independent assessment and assessment of this financial transaction for market balance, compliance with the investment objectives and compliance with the risk strategy by third parties" must have taken place.

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Build finances

Some experts see a problem with the decentralized debt management of the countries. They propose that the liabilities of the countries are centrally managed by the Federal Finance Agency. Although there are constitutional obstacles, so that the federal government, together with the countries, takes debts. There is nothing, however, that prevents countries from passing on their financing needs to the debtor each year, which then issues more government bonds and transfers the funds to the countries accordingly.

In Austria such a "piggyback" practice is applied, in this country the model was also in the past the negotiations on federal financial equivalence on the table. It was not pursued and rejected. Advantage for the countries. Since Bunds have lower interest rates than countries' debt certificates, Hessen, Bremen & Co. can save a lot of interest in such a model. And should not dive into expensive interest rate bets.


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